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‘Motherhood Gap’ in wages hits women hard

Women who exit and re-enter the workforce to have children tend to experience wage losses of 3 per cent per year of absence, says a new TD Economics report.

The ongoing gender wage gap is more accurately described as a “Motherhood Gap” because the hardest hit are women who leave work to have a family, suggests the study released Tuesday called Career Interrupted—The Economic Impact of Motherhood.

“Previous studies on wage differences by gender have found that roughly half of an observed 20 per cent gender gap cannot be explained by the usual factors that drive wages such as experience, hours worked, occupation, industry, age and the like,” said Beata Caranci, deputy chief economist at TD Economics and report co-author.

“The research leads us to conclude that exits from the labour force, most often related to family or motherhood—not gender—are the culprit behind this ‘unexplained’ wage gap,” she added.

One of the most surprising findings, she said, is that this persistent wage loss is as much as three times more severe for frequent exits (three or more) than it is for long absences. As a result, mothers are losing more wages than their co-workers who take extended leaves for reasons including illness or caring for elderly parents.

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Caranci says it is the first report to suggest the “Motherhood Gap” in wages could be responsible for the gender wage differences researchers have previously been unable to explain.

“We should reframe the debate (on the gender wage gap) and reform some of the language” to more specifically reference motherhood, she added.

So while a depreciation of skills is an issue with any extended leave, it is not the headwind previously thought, the report found. Employers typically use the frequency of entry and exit in the labour force as a signal of attachment or commitment to the company.

For example, a woman today with $60,000 in after-tax income who works continuously for another six years would see her real (inflation-adjusted) earnings rise to roughly $64,000, assuming a 1% annual gain.

If this woman takes a single three-year stint out of the labour force before returning and working another continuous 20 years, this woman would incur a cumulative earnings penalty of over $325,000 in today’s dollars (assuming a 55 per cent income replacement ratio in the first year of a child-related absence and a persistent three per cent penalty per year of absence, in accordance to research findings).

The report also suggests ways for women to reduce the motherhood wage gap. Women incur far less financial penalty if they are able to build more experience before temporarily exiting. Returning to the same employer also lends itself to a lower wage penalty, as social networks and other firm-specific skills remain better preserved.

Meanwhile, another report found that Nordic countries Iceland, Norway, Finland and Sweden continue to demonstrate the greatest equality between men and women.

Canada ranked 20th, just behind the United States, which marked its first time in the top 20 at 19, according to the World Economic Forum’s Global Gender Gap Report 2010.

“Nordic countries continue to lead the way in eliminating gender inequality,” said Klaus Schwab, founder and executive chairman of the forum.

“Low gender gaps are directly correlated with high economic competitiveness. Women and girls must be treated equally if a country is to grow and prosper,” he added.

The annual report assesses 134 countries on how well they divide resources and opportunities amongst male and female populations and measures the size of the inequality gap in the areas of economic participation, education, political empowerment and health and life expectancy.

Pakistan, Chad and Yemen continue to display the widest gaps between women and men in 2010, says the report.

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